Understanding Risk Management and Compliance, What is different after Monday, December 2, 2013 [NOOK Book]

Overview

Many risk and compliance management professionals must understand the new RAF.

No, not the Royal Air Force (RAF) ...
... the Principles for An Effective Risk Appetite Framework (RAF), a key component of the Financial Stability Board's (FSB's) framework, endorsed by G20.

Leaders, to reduce the moral hazard of systemically important financial institutions (SIFIs) and, surprise ...

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Understanding Risk Management and Compliance, What is different after Monday, December 2, 2013

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Overview

Many risk and compliance management professionals must understand the new RAF.

No, not the Royal Air Force (RAF) ...
... the Principles for An Effective Risk Appetite Framework (RAF), a key component of the Financial Stability Board's (FSB's) framework, endorsed by G20.

Leaders, to reduce the moral hazard of systemically important financial institutions (SIFIs) and, surprise surprise ...
... non-SIFIs!

... "For non-SIFIs, supervisors and financial institutions may apply the Principles proportionately so that the RAF is appropriate to the nature, scope and complexity of the activities of the financial institution".

Also, "an effective and efficient RAF should be closely linked to the development of information technology (IT) and management information systems (MIS) in financial institutions."

We have some great definitions as well:

Risk appetite framework:

The overall approach, including policies, processes, controls, and systems through which risk appetite is established, communicated, and monitored.

It includes a risk appetite statement, risk limits, and an outline of the roles and responsibilities of those overseeing the implementation and monitoring of the RAF.

The RAF should consider material risks to the financial institution, as well as to the institution's reputation vis-à-vis policyholders, depositors, investors and customers. The RAF aligns with the institution's strategy.

Risk appetite statement:

The articulation in written form of the aggregate level and types of risk that a financial institution is willing to accept, or to avoid, in order to achieve its business objectives.

It includes qualitative statements as well as quantitative measures expressed relative to earnings, capital, risk measures, liquidity and other relevant measures as appropriate.

It should also address more difficult to quantify risks such as reputation and conduct risks as well as money laundering and unethical practices.

Risk capacity:

The maximum level of risk the financial institution can assume given its current level of resources before breaching constraints determined by regulatory capital and liquidity needs, the operational environment (e.g. technical infrastructure, risk management capabilities, expertise) and obligations, also from a conduct perspective, to depositors, policyholders, shareholders, fixed income investors, as well as other customers and stakeholders.

Risk appetite:

The aggregate level and types of risk a financial institution is willing to assume within its risk capacity to achieve its strategic objectives and business plan.

Risk limits:

Quantitative measures based on forward looking assumptions that allocate the financial institution's aggregate risk appetite statement (e.g. measure of loss or negative events) to business lines, legal entities as relevant, specific risk categories, concentrations, and as appropriate, other levels.

Risk profile:

Point in time assessment of the financial institution's gross and, as appropriate, net risk exposures (after taking into account mitigants) aggregated within and across each relevant risk category based on forward looking assumptions.

Read more at Number 1 below.

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Product Details

Meet the Author

George Lekatis is the General Manager of Compliance LLC, a leading provider of risk and compliance training and executive coaching in 36 countries.George has more than 17,000 hours experience as a professional speaker and seminar leader. He has worked for more than 18 years as a management consultant and educator and has demonstrated exceptional presentation and communication skills.George is the president of the Basel ii Compliance Professionals Association (BCPA, basel-ii-association.com), the largest association of Basel ii professionals in the world, and the Basel iii Compliance Professionals Association (BiiiCPA, basel-iii-association.com), the largest association of Basel iii professionals in the world.George is also president of the Sarbanes Oxley Compliance Professionals Association (SOXCPA, sarbanes-oxley-association.com), the largest Association of Sarbanes Oxley professionals in the worldGeorge is an expert witness, qualified to investigate and testify about risk and compliance management standards, policies, procedures, best practices, due care and due diligence.
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